Many financial institutions such as corporate banks, for example, offer a wide variety of financial products and services to their customers. These financial products and services may include one or more types of financial instruments that are suited to meet the diverse needs of the various customers of the financial institution.
One example of a financial instrument offered by a financial institution is a collateralized loan. In general, a collateralized loan permits the customer to borrow funds from the financial institution in exchange for a commitment of collateral by the customer. It can be appreciated that funds may be borrowed through a collateralized loan for a variety of business and/or personal objectives. These objectives often involve a certain amount of risk, depending on the purpose to which the borrowed funds are committed. If the amount of risk associated with a particular objective is relatively high, then it is possible that all or a substantial portion of the borrowed funds may be lost or diminished by the borrower. Furthermore, this loss of funds may adversely impact the ability of the borrower to meet obligations under the terms of the collateralized loan agreement. It can be seen, therefore, that the value of collateral supplied by a loan customer serves to protect the financial institution in the event that the customer cannot meet obligations with respect to repayment of the collateralized loan.
To further mitigate financial exposure in a given transaction, however, the financial institution must consider the volatility of the value of the collateral employed in connection with a financial instrument, such as a collateralized loan. In one illustrative type of collateralized loan, securities (e.g., stocks, bonds, debt instruments, and the like) are provided by the customer to serve as collateral for funds borrowed with the collateralized loan. It can be appreciated that collateral that includes securities possesses a comparatively higher potential for change in value than alternative, comparatively more stable forms of collateral such as real property, for example. As a general principle, securities change value with comparatively higher frequency and potentially greater magnitude, and therefore may be more financially volatile, than other types of more stable collateral.
Thus, loans and other financial instruments executed between a financial institution and its customers in connection with potentially volatile collateral should be appropriately monitored, analyzed and managed. Methods and systems are needed to manage and reduce the risk of such collateral to the financial institution. Improved methods and systems for monitoring, analyzing and reporting information in association with collateralized financial instruments are also needed in the event that customers cannot meet obligations with regard to the financial instruments.